The roots of the FSF in the larger international regime
In 1975 the regime consisted of the G-10 Central Bank Governors with their newly formed Basle Committee on Banking Regulations and Supervisory Practices and, also newly formed, the Inter-American Association of Securities Commissions and Similar Organizations, which, in 1984, would be transformed into the globally oriented International Organization of Securities Commissions. These institutions would become the main bodies responsible for international banking and securities regulation respectively. Additionally the Bank for International Settlements produced data on and analysis of global financial markets as did the G-10's Eurocurrency Standing Committee which, like the Basle Committee, had its secretariat at the BIS. 3
By 1998 the capacity and organizational complexity of the regime had grown dramatically. Two new Basle-based institutions had developed: the BIS's Committee on Payment and Settlement Systems and the independent International Association of Insurance Supervisors, with a secretariat also located at the BIS. Beginning in 1980 the Basle Committee established relations with eleven regional groupings of bank supervisors, some of which it had actively fostered, significantly extending its influence in most regions of the world. IOSCO had grown to become a well-established organization with 159 members from around the world. Substantial regularized collaboration between the Basle-based groups and IOSCO, the International Monetary Fund, and the World Bank had also developed. All of the institutions had generated enormous amounts of technical information, created well-established patterns of collaboration between national regulators, and generated agreement on best practices. Additionally more formal standards had been agreed, with the international oversight of the standards' national implementation, as with the Basle Committee's capital adequacy standards, and IOSCO's "Objectives and Principles of Securities Regulations."
The creation of the FSF, with representatives from all of the Basle-based regulatory groupings, IOSCO, the IMF and the World Bank, along with 21 representatives of the G-7, could be seen in part, then, as the logical outcome of this process of institutionalization of the regime for international financial regulation. It had become increasingly clear even before its formation that some mechanism for coordinating between the international regulatory bodies was needed given the intensifying linkages between the activities which each sought to regulate. The earlier creation, in 1993, of the Tripartite Group, bringing together representatives of the Basle Committee, IOSCO and the IAIS, and its successor, the Joint Forum, in 1996, could be seen as precursors of the FSF (Tripartite Group, 1995). The FSF's location, with a secretariat, at the BIS, along with the appointment of Andrew Crockett, BIS General Manager, as its first chair, further indicates its continuity with the Basle-based committees.
The role of increased G-7 political intervention
The strong and overt political guidance exercised by the G-7 over the FSF was a marked change from the earlier heavily technical governance of the regime. The other regulatory groupings were created and responsible to the G-10 Central Bank Governors (as with the Basle Committee and the Eurocurrency Standing Committee, which was renamed the Committee on the Global Financial System in 1998), to national regulators, as with IOSCO and the IAIS, or to the BIS central bankers, in the case of the CPSS. By contrast the FSF was created by the G-7 finance ministers, a political body itself reporting to and oversighted jointly by the G-7 leaders. At its creation, with 21 G-7 representatives out of its 35 members, including representatives from G-7 finance ministries, the ongoing political control of the FSF was further ensured. The approval of the G-20 at the Koln summit, and its launching in September 1999, was an even more dramatically political intervention by the G-7. The character of its formation, in which its initiation, mandate and membership was fully under the control of the G-7, signalled the heightened prominence of politics in the regime as did the G-20's inclusion of G-7 and non-G-7 finance ministers--political actors--and not just central bankers and regulators which had been the key actors in the pre-1999 regime for prudential regulation.
The more prominent political role of the G-7 in the international regime for financial regulation dates back to the 1995 Halifax summit which took place in the wake of the Mexican peso crisis. Of course the G-7 had earlier considered financial matters, such as the instability that followed the collapse of the Bretton Woods system which in part was one of the original reasons for the G-7's formation, or the G-7's creation of the Financial Action Task Force in 1989 to address money laundering. However beginning in 1995 the G-7 began to devote more sustained attention to financial stability, calling for and considering reports from their Finance Ministers on the topic as well as issuing their own statements.
While much of the G-7 involvement was initially limited to general statements of intention it subsequently became increasingly detailed, specific, and associated with identifiable outcomes. Thus at the 1995 summit the G-7 made vague calls for an improved early warning system, heightened cooperation and greater IMF involvement in regulatory issues, and speedier and more generous disbursement of IMF funds in crises. By the 1999 Cologne summit the G-7 could point to concrete developments in the IMF's Data Dissemination Standards, in the changing practices regarding the release of information from IMF reviews of national economies, in the Contingent Credit Line of new IMF crisis financing and in the pace at which agreed best practices were being developed in the international regulatory bodies, although the exact impact of G-7 declarations on these international bodies, which have their own momentum and are ostensibly independent of the G-7, is hard to precisely measure. As well, by Cologne, the G-7 leaders were regularly approving increasingly detailed and specific progress-reports and plans prepared by G-7 Finance Ministers and Central Bank Governors. 4
In April 1998 the creation of the ad-hoc G-22, in a meeting with G-7 and non-G-7 countries where the US unilaterally and peremptorily set out the Group's membership, presaged the creation of the G-20. The G-22 included G-7 representatives, Australia, and 14 emerging market representatives and would, in October 1998, release three substantial reports on the international financial architecture.5 It operated through three Working Groups, each chaired by one developed and one emerging market representative.
The actions of the G-7 in 1999 in creating the FSF and the G-20, while following logically from its previous involvement in international financial regulation, were qualitatively more forceful and explicit. While the G-7's 1989 creation of the FATF could be seen as a precedent, the FATF was a committee framed as responsible for a relatively narrow and technical sub-problem in the overall issue area of global finance. By contrast, the FSF was designed to bring together with the G-7 all the international bodies concerned with international financial regulation. The G-20's role was even more ambitious: G-7 actors indicated that the G-20 was expected to coordinate the FSF and the possibility was even noted that it might supplant the G-7. 6 Despite the dominant role of the G-7 in its creation the G-20 was a remarkable development: comparable in some respects to the unlikely possibility that the Permanent 5 on the UN Security Council would spontaneously agree to provide some type of special standing there for prominent industrializing countries.
The first months of the FSF and G-20
By the end of 1999 both the FSF and the G-20 had begun meeting and it had become apparent that their functioning corresponded largely with what one would expect given the discussion above of their origins. The FSF had met as a whole twice--on April 14, 1999 in Washington and in Paris, September 15, 1999. Three FSF working groups had been formed: on highly leveraged institutions (hedge funds); on capital flows; and on offshore financial centres. While the tone of reports on their functioning retained the technical orientation traditional in the regime for international financial regulation the topics addressed involved more politically controversial matters than would have been typical in past years of the international regulatory regime.7 Reports on the G-20's meeting, conversely, gave the impression of an organization that, given the political origins of its members, was relatively free of politics.8 Thus it was clear that both institutions were drawing on the regime's technical heritage to handle potentially politically conflictual issues in an apolitical way. Moreover the FSF's and G-20's creation had been a relatively modest and low-profile affair given the severity of the preceding crisis and its first months' functioning indicated continuity with this aspect of its origins, facilitated by the easing of the financial crisis.
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